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The idea of peer-to-peer lending, which uses the Internet to eliminate the banks who sit between borrowers and lenders, has been gaining popularity due to the lower rates for borrowers and higher returns for lenders.

The three-man LendingRobot team.

But this process can be cumbersome given the high degree of portfolio diversification required, the high volume of loans being made available on a daily basis, and competition from institutional investors.

Now, one Seattle startup is using the Internet to make peer-to-peer lending more efficient for all parties involved.

Founded in 2012, LendingRobot uses machine-learning algorithms to help investors automatically track down the most valuable loans. The cloud-based service just updated its offerings this week to support more than 40 different filtering criteria for Lending Club and Prosper Marketplaces, two of the leading peer-to-peer lending companies in the U.S.

“While peer lending is experiencing phenomenal growth, LendingRobot will ride this growth, and make it easier for anyone to invest in peer lending,” CEO Gilad Golan said.

We caught up with Golan for this installment of Startup Spotlight, a regular GeekWire feature.

Explain what you do so our parents can understand it: LendingRobot simplifies and automates peer lending investments. It saves people time and helps increase their returns.

Inspiration hit us when: We started investing some of our personal money in peer lending about two years ago. We loved the good returns and low risk it offered, but didn’t anticipate how time consuming it would be. We were tired of losing out on the best loans because we couldn’t act fast enough.

It dawned on us that this was a job for software, not humans. We started by writing a small script. It brought so much relief to our lending efforts that we began inviting other people to try it, and got swarmed by unconditional love. So we decided to turn our technology into a commercial service to simplify and automate the process. We give individual investors in peer lending the kind of tools traditionally available to institutional investors.

The Internet is a great equalizer. The Internet is removing much of the friction in the consumer lending market, and this is another example of how technology is empowering individual investors, creating opportunities for new companies like us, and diminishing the role of banks and traditional financial institutions as gatekeepers.

VC, Angel or Bootstrap: Bootstrap and then angel. We’re a cloud-based company, so our technology costs are minimal. But the finance industry is heavily regulated, and the costs of being fully compliant required a seed round.

We’re registered with the SEC as an Investment Advisor. It’s not entirely clear how automation will be regulated in the future, but we wanted to take a conservative approach because we think it’s good for our customers. Also, we think the peer lending market is booming and wanted to be sure we are set up to be a leader in this space.

LendingRobot CEO Gilad Golan.

Our ‘secret sauce’ is: We aggregate tons of data in our cloud service and evaluate all loans as they are issued. LendingRobot constantly watches for new loans and automatically places orders for loans that match an investors criteria in less than a second after they appear. Also, we’re riding a huge wave in the popularity and growth of peer lending, and are one of the first startups with a commercialized solution.

We let investors sleep at night, because their LendingRobot won’t.

The smartest move we’ve made so far: We’re addressing a real, very concrete problem we experienced firsthand. We are focused, and putting all of our time and energy into this business.

The biggest mistake we’ve made so far: Not shipping fast enough. But we’re perfectionists and since we invest people’s money we have to be extra cautious.

Would you rather have Gates, Jobs, Zuckerberg or Bezos in your corner: Jobs, because having a ghost adviser would be the ultimate reality distortion field. But seriously, probably Bezos, because the finance industry is moving from an insane-margin business to something more reasonable, and who’s better to combine long-term ambitious vision with short-term relentlessness in improving efficiency?

With over $4 billion in loans issued already, and about $500 million issued every month, the peer lending market is experiencing phenomenal growth. But that’s nothing compared to where it’s going. The market is doubling every nine months. Yet it is still only 0.2 percent of the overall consumer credit market today.

We think there will be huge demand for LendingRobot by people who want to save time and improve their returns.

Rivals should fear us because: We’re lean and mean. Well, not mean. We’re lean and nice. We also bring a lot of expertise to the table: We have deep backgrounds in software, finance, security, information architecture, and user experience.

We are truly unique because: We’re the only company providing this kind of automation services for individual investors in peer lending. As far as we know, we’re the only SEC-registered Investment Advisor in the field. And we’ve got the cloud chops to harness and analyze all the data about the peer lending market.

The biggest hurdle we’ve overcome is: Getting registered with the SEC. Working in such a heavily regulated industry can be frustrating for startups. But ultimately the rules are designed to protect customers, and that’s our number one priority.

What’s the one piece of advice you’d give to other entrepreneurs just starting out: Do only one thing, but do it insanely well.

Taylor Soper is a GeekWire staff reporter who covers a wide variety of tech assignments, including emerging startups in Seattle and Portland, the sharing economy and the intersection of technology and sports. Follow him @taylor_soper and email taylor@geekwire.com.

Comments

Slaggggg

Would be interesting to dig deeper into how this works:

> We aggregate tons of data in our cloud service and evaluate
> all loans as they are issued
Is there some peer loan clearinghouse or marketplace somewhere? Where do you get this data from? Hard to understand this startup without understanding the ecosystem they are riding on top of

Thiago

So could this also be used to simplify more day-to-day dealings, like home or business loans? I think it would be a really useful implementation, if it’s possible. I mean, how many people are trying to take out home loans every day? Thiago | http://www.dmcloans.com/loanOptions/Featured/